Market wrap: Australian stocks face an uncertain start this morning as the impact from Japan's earthquake overshadows a positive end to last week's trade on Wall Street.
The March SPI futures contract closed 8 points or 0.17% stronger at 4639 on Saturday morning, suggesting a flat-to-modestly-positive open to share trading this week. However, the weekend fallout from Friday's devastating events in Australia's second biggest export market may alter that outlook.
US stocks rallied on Friday after a fall in the price of oil as Saudi Arabia's "Day of Rage" passed without major incident. The S&P 500 added 0.71% but closed 1.3% lower for the week as energy and mining stocks recovered. The Dow put on 60 points or 0.5% and the Nasdaq added 0.54%.
Oil suffered its biggest intraday drop since November as Japan's earthquake closed refineries, and protests in Saudi Arabia were peaceful and much smaller than some commentators had predicted. Crude futures tumbled 3.6% in intraday trade but pared losses to finish $1.54 or 1.5% weaker at US$100.59.
"The earthquake in Japan added to the uncertainty in markets, but you already had tensions in the Middle East, the oil price going up and problems resurfacing in the euro zone," the head of research at BNP Paribas Fortis Global Markets told MarketWatch. "This is a perfect storm of uncertainty coming together, so we could see a couple of weeks of 'risk off', with corrections in the equity market."
Friday's US economic data was mixed, with rises in business sales and inventories offset by a drop in consumer sentiment and a smaller-than-expected rise in retail sales.
Resource stocks were boosted by the prospect of increased demand from the rebuilding effort in Japan. In US trade, Rio Tinto rallied 1.5%, BHP 1.4% and Alumina 3.6%.
However, industrial metals prices mostly declined as Friday's Chinese inflation report weighed on the demand outlook. China's February inflation exceeded expectations at 4.9%, raising the odds on further interest rate rises.
Copper briefly extended its weekly loss to 10% as last week's reports showed China's copper imports dropped by 35% in February from the month before, but recovered to end the session higher. In London, copper added 0.75% and tin 1%. Aluminium fell 1.8%, lead 0.15%, nickel 0.6% and zinc 0.3%.
A tumble in the US dollar and safe-haven buying helped gold end Friday higher. Gold for April delivery rose $9.30 or 0.7% to $1,421.80 an ounce. May silver put on 87 cents or 2.5% at $35.93 an ounce for a seventh straight weekly rise.
The major European share markets closed lower as Japan's earthquake hurt re-insurers and reduced demand for risk assets, including equities. Britain's FTSE dropped 0.28%, Germany's DAX 1.16% and France's CAC 0.89%.
TRADING THEMES THIS WEEK
JAPANESE EARTHQUAKE: The initial reaction to Friday's earthquake in Japan was restrained on Wall Street but this week may offer a more sober view. The ongoing threat of a nuclear incident adds to the uncertainties in an increasingly complicated outlook for world markets. There will be an obvious near-term impact on demand for Australian goods and services from our second biggest export market, but the possibility of a pick-up in orders for raw materials once rebuilding gets underway. Australian insurers may come under further pressure this week as the scale of the Japanese event forces re-insurers to raise charges. Our share market certainly looks oversold in the short term but it would take a brave man to pick today's direction with any confidence.
OIL: Friday's "Day or Rage" demonstrations in Saudi Arabia, the world's biggest oil producer, passed without incident, reducing the recent pressure on the price of oil and world share markets. Increasing signs that Libyan leader Muammar Gaddafi may survive the uprising in Libya add to the possibility that the "Jasmine Revolution" across North Africa and the Middle East may have peaked. Further falls in the price of oil this week would be a positive for share markets.
ECONOMIC NEWS: This week's local schedule includes: minutes from the last RBA meeting (tomorrow); the leading index, housing starts (Wed); and the RBA Bulletin (Thu). Inflation dominates domestic concerns in the US this week, with monthly reports due on Wednesday and Thursday. Highlights this week are: import price index, Empire state index, home builders' index (Tue); producer price index, core PPI, housing starts (Wed); and consumer price index, core CPI, jobless claims, industrial production, leading indicators and Philly Fed (Thu).
